Realty Income (O -0.17%) has done an amazing job growing its dividend over the years. The REIT has increased its payout 121 times since its public market listing in 1994, including for the past 103 straight quarters. It has raised its dividend by 3.2% overall over the past year. 

A big driver of the company's growing dividend is its ever-expanding portfolio of income-producing real estate. Realty Income acquired $3.1 billion of properties in the second quarter alone. It sees a massive growth runway ahead, estimating that there is a $1.6 trillion opportunity to acquire real estate from large corporations in its target markets. These factors put the REIT in an excellent position to continue increasing its 5.4%-yielding dividend.

Going on a shopping spree

Realty Income initially expected to acquire over $5 billion of income-producing real estate this year. However, now it anticipates its 2023 investment volume will be over $7 billion. 

One factor driving its increased acquisition outlook is its success so far this year. The REIT had already invested nearly $4.8 billion to acquire or develop almost 1,000 properties by the end of the second quarter. The most notable transaction was buying 414 single-tenant convenience stores in the U.S. from leading U.K.-based convenience retailer EG Group. The $1.5 billion transaction closed in the second quarter. 

The company is also having better success in closing deals it sources. It acquired 15% of its sourced investment volume in 2023, more than double the 7% rate it has averaged over the last five years. It's facing less competition for acquisitions because rivals don't have as much access to capital due to surging interest rates. Meanwhile, sellers are more motivated because they're facing pressure from higher interest rates. 

Realty Income also continues to expand into new geographical regions and property types. It made its first investments in Ireland during the second quarter, buying two properties for $54 million. In recent months, it also made its first transaction in Italy, formed a real estate development partnership in vertical farming, and invested in the gaming and consumer-centric medical sectors. The company's continued expansion into new areas increases its future growth potential. 

The trillion-dollar opportunity

Realty Income expects even more acquisition opportunities to be available in the future. CEO Sumit Roy discussed one of the major factors that could drive accelerated acquisition volume on its second-quarter conference call. He stated:

Looking at the S&P 500 constituents within our addressable market, we count approximately 300 firms with $1.6 trillion of owned real estate. To quantify the near-term opportunity, which is available to us as sale-leaseback capital providers, this group has approximately $1.2 trillion of debt, representing 34% of the group's outstanding debt capital maturing between 2024 and 2027. 

Roy points out that 300 of the largest publicly traded companies in the U.S. own about $1.6 trillion of real estate. That real estate could be an important source of capital as companies face a massive debt maturity wall in the coming years. Instead of refinancing their debt at much higher rates, they can sell their real estate to a company like Realty Income in a sale-leaseback transaction and use the proceeds to repay debt. This route would enable companies to deleverage their balance sheet while eliminating future maturity risk. Sellers would sign long-term leases, locking in the expense instead of facing the risk that they'd need to refinance debt again in a few years, potentially at an even higher rate. 

Given these benefits, "We believe there is a more compelling case to be made than ever for corporates to look to sale-leaseback financing to replace maturing debt," stated Roy on the second-quarter call. That drives his view that the company's "growth opportunities will continue to expand on a sustainable basis." A higher sustained growth rate puts Realty Income in an even better position to continue increasing its dividend, potentially at a faster rate. 

A massive growth runway

Realty Income had almost reached its initial 2023 acquisition volume target by the end of the first half. That's leading it to boost its expectations. The REIT could continue to see higher acquisition volumes in the future because corporations have lots of debt maturing in the coming years. That could drive more companies to complete sale-leaseback transactions to repay debt instead of refinancing at higher rates.

This catalyst bodes well for Realty Income's amazing dividend, which could grow even faster in the future. It makes the REIT an even more appealing option for investors seeking an attractive and growing passive income stream.